Given the recent developments, private sector banks are seen as safer bets compared to public sector peers
The sector’s deposit growth stood at 17 per cent year-on-year in the recently concluded quarter, as compared to 20 per cent in the corresponding period a year ago. Domestic credit-deposit ratio dipped about 150 basis points sequentially to 73.2 per cent.
Going ahead, the credit growth is expected to be in line with the Reserve Bank of India’s projection of around 20 per cent, but anything beyond that will be a struggle, reckon analysts. An analyst at Ambit Capital, A V Krishnan, believes the actual thrust may spill over onto the next financial year, as banks are likely to push loans at the cost of diluting margins in the absence of genuine appetite for credit (seen in slowing of industrial growth).
However, this may not happen after the loan graft scam and the 2G row. Edelweiss research believes the cooling-off corporate paper demand, given the large government borrowing programme, may offer some respite to demand for bank credit, although offshore borrowing could be an alternate source of disintermediation.
Another concern emerges on the portfolio quality front, as slippages from the restructured portfolio are expected to remain high. Public sector banks (PSBs) are expected to face additional credit costs pressure, courtesy their migration to system-based non-performing loan recognition. Analysts reckon the impact of the recent scams on the asset quality of the banks involved will be marginal.
The BSE Bankex slipped over four per cent last week, with PSBs skidding over eight per cent. The additional operating cost expected from the second pension option offered to bank employees last year and gratuity costs will keep PSBs under pressure, believes Edelweiss. Largecap banks, with strong current and savings account deposit, are seen as safer options, with private sector lenders like HDFC Bank expected to benefit the most.